Is Nick Denton Really the New Rupert Murdoch?

Kudos to my colleague Ben McGrath for finally eliciting some dollar figures for the revenues of Gawker Media. Back in early 2006, when I spoke to Denton about the possibility of writing an article about Gawker’s rise, he was friendly enough, but he wouldn’t reveal anything concrete about his company’s finances. Since that was one of my primary interests, I dropped the story.

Before moving on to other topics, I came to suspect that Gawker Media’s revenues were rather punier than many people thought and than Denton had intimated. Somebody with direct knowledge of the firm’s business side said that in estimating its revenues, the best thing to do was think of a number and move the decimal point one place to the left.

Denton has moved beyond the stage of running a cottage business, but suggestions that he has joined, or is about to join, the ranks of moguldom, where revenues are measured in the hundreds of millions, or billions, are absurd. Denton is aware of this disjuncture—up to a point. A few weeks ago, I met him at a party, and he told me that New York magazine, which recently profiled him as one of the people who run the city, had pitched the story to him as “the new Rupert Murdoch.” In telling me this, Denton said he thought New York’s editors had been “a bit premature.” When I suggested that they might have been about forty years premature he didn’t smile.

Gawker Media’s page-view numbers are testament to Denton’s energy and acuity as an online publisher, and, as he frequently points out, they are higher than the figures for the Web sites of big mainstream publications such as the Washington Post and Time. (Though not bigger than NYTimes.com, which each month attracts 26 million unique users and 640 million page views.) What Denton doesn’t point out—and why should he?—is that some of the deadwood media dinosaurs he would consign to the knackers’ yard appear to be growing faster than Gawker Media and doing a better job than Gawker Media in converting page views to advertising dollars.

Take Time Inc. In April, 2008, its network of sites, which includes People.com and Time.com, was attracting some 20 million U.S. visitors a month, according to Quantcast, a supplier of online metrics. Today, the Time sites are getting about 50 million visitors a month, an increase of 150 per cent. During the same two-and-a-half-year period, Gawker Media’s visitors, again according to Quantcast, went from about 12 million to 20 million, an increase of two thirds. If these figures are even roughly accurate, they suggest that Gawker has shared in online media’s rapid growth rather than standing out.

Now for advertising. In the second quarter of this year, the digital operations of the New York Times Company, which include the NYTimes.com, About.com, and Boston.com, generated $94.3 million, implying that its annual revenues are roughly twenty-five times those of Gawker Media. The revenues of the Washington Post Company’s online news division—WaPo.com and Slate, principally—are smaller. They totaled $27 million in the second quarter, but that still makes them roughly seven times the size of Gawker Media’s revenues. On this basis, it appears hard to argue that Denton is about to sweep away Pinch Sulzberger or Don Graham, still less Murdoch himself.

That said, he runs an innovative little company that has some well-known online brands, and he has bigger ambitions. Understandably enough, he likes to group his sites together for publicity and marketing purposes. In fact, they are a diverse collection of businesses, each with its own strengths and weaknesses. Gizmodo (gadgets), Kotaku (gaming), io9 (sci-fi), and Lifehacker (personal productivity) are basically geek sites. Together, they account for well over half of Gawker Media’s unique visitors, and, I would guess, an even higher proportion of its revenues. Jezebel is a sassy site for women; Deadspin is a sports blog; Gawker is a celebrity/media gossip column; Jalopnik is devoted to cars; Fleshbot is a porn site.

Naturally, these sites have very different audiences. Persuading corporations to purchase ads across all of them must be tough, which means each site has to stand on its own two feet. But when you break down the audience figures for the individual sites, they look somewhat less impressive. Gawker.com, for example, attracts roughly 400,000 visitors a day in the U.S., compared to 1.6 million for TMZ.com and 1.7 million for People.com, two of its rivals in celebrity coverage.

According to Quantcast, the average visitor to Gawker views about four pages, which means he or she scans the home page and clicks on three stories. When I just did this, it took me about three and a half minutes. (Admittedly, I didn’t read the comments.) Now, I’m no ad salesmen, but my guess is it isn’t easy persuading Citibank or Unilever to buy ads for any publication (online or offline) to which a good many readers devote less than five minutes a day, all the time hoping their boss isn’t watching.

Denton in his more reflective moments acknowledges some of the economic challenges he faces. In the New Yorker article, he says online publishers could end up like Craigslist, destroying a lot more value than they create, or they could end up like cable companies such as MTV and CNBC, which struggled financially to begin with but ended up minting advertising dollars. The article also reports that when he started out he assumed that each of his sites, to be economically viable, would need to attract a million page views a month, but today he thinks the figure is twenty million.

Gawker Media’s bigger sites comfortably exceed that threshold, but growing an online audience is increasingly costly. A few years back, the Gawker site employed four or five reporters whom it paid modestly to churn out a lot of copy—at one point, the going rate was twelve dollars a post, twelve posts a day. Today, Gawker.com has a dozen people plus an intern on its masthead, and some of them reportedly earn decent salaries (up to $75K plus a year, with benefits).

The cost inflation is unlikely to stop. Online publishing has turned into a destructive arms race. When I spoke to Denton, if memory serves, there were about fifteen or twenty posts a day on Gawker.com, and Denton told me he believed the ideal figure was twenty-five. As I write this, the Gawker home page says there have been sixty-nine posts in the last twenty-four hours. As the emphasis in online publishing shifts further to video, the cost of producing memorable content is going to escalate further. There is a reason that most cable channels, and even some video-heavy news Web sites, such as TMZ, reside inside giant media companies such as Comcast and Time Warner.

Then there is the bigger question of where the Internet is going, and how blogging outfits such as Denton’s fit into a rapidly changing ecosystem. Gawker Media is quintessentially a product of the open Internet. Its business depends on taking content produced by others and turning it to its own advantage. But as Chris Anderson, the editor of Wired, pointed out in a recent cover story, we are witnessing the development of a closed, or semi-closed, Internet, in which distribution companies such as Apple, Facebook, and Hulu run their own content networks, and a lot of interesting content is walled off. In such an environment, will Gawker and Jezebel still have enough material to link to? Will advertisers flee the chaos of the Web and migrate to more sheltered confines? Will Denton launch his own iPad app, and, if so, what will he put on it?

For the moment, Denton appears to be betting on the free Web defeating the proprietary Web, and he could be proved right. But to me the upshot of all this is, a) I am not so sure that Gawker Media as currently constituted is, as Ben writes, “a sustainable business,” and, b) if Denton really wants to compete with the big boys, rather than simply sniping at them, he will need to attract a cash infusion, either by selling out to a larger player, or, more likely, by attracting a rich investor who is willing to let him maintain control. Perhaps this is why he has been buying back shares he had issued to employees.

Finding a suitable deep-pocketed partner might not be as easy as some observers are suggesting. Denton likes to hint that he has already rebuffed a takeover offer from Murdoch’s News Corp. My sources say that isn’t quite accurate. According to the version I heard, one of Murdoch’s minions did meet with him a few years ago and say that if ever he wanted to sell he should get in touch. But that is as far as things went.

Clearly, Denton could find a buyer or strategic investor at some price, but it wouldn’t necessarily be in the $100 million range that is bouncing around the blogosphere. Such a figure would place a valuation on Gawker Media of more than six times its revenues. Yahoo, the third biggest site on the Web, is trading at three times revenues. AOL, another big online publisher, is valued at less than its revenue. Could it be that Denton wasn’t low-balling his former employees by much when, in offering to buy back their shares, he reportedly valued the company at $30 million, or roughly two times revenues?

2011 is almost upon us. Undoubtedly, there is still some “dumb money” out there, but the days when big media companies were desperate to acquire hip Web content at any cost could be behind us. Right now, Murdoch, Bewkes, et al. are more interested in building tablet apps for their existing properties and figuring out how to get a grip on online television.

Perhaps Denton is hoping that the Facebook I.P.O., which is now expected to take place in early 2012, will spark another dot-com bubble, which would provide him with currency to fund further expansion. (Good luck with that one, Nick.) As an admirer of his enterprise, and as somebody who shares some (but not all) of his strictures about the old-style American publishing industry, I will be watching his next move with interest. Like Murdoch, he is a savvy operator who prides himself on his detachment and shouldn’t be underestimated. But that’s where the comparisons should stop. For now, at least, Uncle Rupert can sleep soundly in his bed.

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UPDATE, 10/15, 2:45 P.M.: Nick Denton e-mailed to say that some of my page view figures are misleading and don’t compare like with like. He points out that Time Inc.’s numbers are flattered by the recent roll-up of a large number of sites into its network, and that his individual sites, such as Gawker and Gizmodo, are expanding their audiences much faster than Time Inc. sites like People.com and Time.com. He writes, “It’s plain upside down to say that Gawker’s grown no faster than the web—and slower than Time Inc.”

It is certainly true that Gawker and Gizmodo are adding readers faster than Time.com and People.com. (Denton helpfully provided these Quantcast charts: Time.com, People.com, Gizmodo, Gawker.) Still, the fact remains that, however it acquired them, Time Inc.’s network now attracts fifty million visitors a month, versus twenty million for Gawker Media.

But my main point wasn’t about adding eyeballs—on that count, as I said in the second paragraph, Gawker Media’s growth has been impressive. The issue is money. Can Gawker Media (and other blogging outfits such as the Huffington Post) translate their rapid audience growth into big streams of revenue and profits, thereby becoming dominant players in the news-media business? Or will the established players, which now have sizeable online arms as well as other sources of income (and costs), ultimately come out on top? Therein lies the future.